KOLKATA -
Not long ago, India's auto industry was a laughing
stock. Its two best-known cars were a 1940s Morris model
called the Ambassador and a 1960s Suzuki-derived model
called the Maruti 800. But that was then. Today, for
instance, the Mumbai-based Dilip Chhabria Design Pvt Ltd
(DC Design) is seeking to take on Pininfarina and
Bertone, the Italian standard in international car
design, by designing and building concept cars,
prototypes and limited-production runs. Nor is DC Design
alone.

"There can be few more improbable
automotive stories than the yarn about the Indian
designers creating bespoke concept and prototype cars,"
said the United Kingdom's auto magazine Autocar in a
recent issue. "Yet the hottest ideas in car design are
happening right now in the back streets of Mumbai."
India is now the ninth country in the world to design a
vehicle on its own.

In fact, the Indian auto
industry is fast becoming an outsourcing hub for
automobile companies worldwide, as zooming automobile
exports from the country indicate. Surinder Kapur, the
chairman of Sona Koyo Steering, which exports car
steering assemblies, says, "Car makers over the world
have realized that India can design a car on its own and
make it globally acceptable."

Passenger car
exports have nearly trebled in four years, from 28,122
units in 1998-99 to 71,653 vehicles in 2002-3. The
industry expects this to gather steam further ahead
because car exports in the first quarter of 2003-4 leapt
by 87 percent over the same period in 2002-3. The
two-wheeler segment is booming, too, with exports
zooming from 100,004 units last year to 179,000 units in
2002-3. By 2005, the industry expects 400,000
two-wheelers on foreign shores.

The Indian-made
sports utility vehicle Scorpio received a singular
response in Detroit early this year, not just for its
design but also because of its cheaper price tag. Tata
Motors, the country's second-largest car maker's small
Indica convinced MG Rover of the UK to sell it to the UK
market as the City Rover. Others like Ford's mid-sized
car model Ikon, Maruti's Altos and Toyota's Indian-made
multi-utility vehicle have found ready buyers in a
number of American, European and neighboring countries.

And when cars and two wheeler exports are on a
roll, can automobile components be far behind? Pushed to
export last year following a two-year domestic slowdown,
the auto component exported $850 million worth of the
nuts and bolts that go into making an automobile by
March 2003, up from $578 million in March 2002. "Indian
auto component makers now supply to virtually the best
and the biggest in the world," says Suresh Krishna of
Sundaram Fasteners, a leading auto component exporter,
adding that he expects the country to export a targeted
$2 billion by 2006.

"Indeed, India is well on
its way to become an outsourcing hub for global auto
manufacturers and the country stands a good chance
against China," says Sundaram Mutual Fund managing
director T P Raman, although Joginder Singh, vice
president of finance for Ford Motor Company of Canada,
thinks that global auto majors can't ignore either China
or India.

Already, 15 global car makers -
including GM, Ford, DaimlerChrysler, Mercedes-Benz,
Audi, Isuzu and Nissan – have set up outsourcing offices
in the country, with a combined budget of approximately
$1.5 billion, industry sources say. Leading component
makers like Delphi, Visteon and Caterpillar, too, have
found India their best bet. While according to industry
estimates the cost of automotive design in Europe ranges
as high as $800 per hour, and even higher in the US,
costs are as low as $60 per hour in India for equivalent
quality.

Whether the next outsourcing wave or
simply smart marketing by a local industry, global auto
makers are increasingly turning to India for sourcing a
wide range of needs that even include designing models
meant only for global markets. "To begin with," says
Deep Kapuria, of Automobile Components Manufacturers
Association of India, "it's triggered by the overall
economic slowdown and large-scale bankruptcies in the
global auto sector. And as global giants continue losing
money, cost pressures are forcing them to opt for
sourcing bases in developing countries."

But
more importantly, according to industry analysts, the
Indian auto industry has finally come of age, having
upgraded itself in the past few years to meet global
standards. Dilip Chhabria, the head of DC Designs, makes
no bones about taking on the world's best. Earlier this
year, the Aston Martin AMV8 Vantage starred at the
Detroit Auto Show. Chhabria developed the prototype as
part of a Ford contract.

Until the mid 1990s,
the Indian auto sector consisted of just a handful of
local companies. However, after the sector opened to
foreign direct investment in 1996, global majors moved
in. By 2002, Hyundai, Honda, Toyota, GM, Ford and
Mitsubishi had set up their manufacturing bases here.

"These companies first had to focus on issues
like quality, vendors and marketing before they could
think big," says Arindam Bhattacharya, vice-president,
Boston Consulting Group. Thus, in the past four to five
years, these companies have not only fine-tuned their
operations but forced transformation on the rest of the
industry as well.

"Consequently," Bhattacharya
adds, "India has not only emerged as a low-cost base but
also a source for producing quality products."

The sector also received an unintended boost
from stringent government auto emission regulations over
the past few years. This ensured that vehicles produced
in India conformed to the standards of the developed
world. It also drew technology infusion and investment.
"Not surprising then that India is also set to become a
preferred research and development [R&D] center,"
says Ravi Khanna, president and managing director,
Delphi India, adding that its Indian facilities are "an
integral part of its worldwide engineering and technical
footprint".

Nevertheless, according to managing
director Jagdish Khattar of Maruti Udyog Ltd. India's
largest car maker and a Suzuki joint venture, India
still has a long way to go to become a global force.
"Indian companies need to first grow the Indian market
to acquire economies of scale," he says. China, for
instance, consumes four times India's 700,000 annual car
sales. Moreover, if Indian companies hope to corner a
big chunk of the global market they need to ramp up
global presence considerably, say others.

Still,
Joginder Singh of Ford feels that India's auto industry
will continue to make its presence felt, primarily
because it is one of the few countries the global auto
industry cannot ignore. "Two-thirds of a car is built
from suppliers. That's a big cost item and companies can
cut costs to a large extent in places like India and
China," he says. "We can't ignore either China or India,
which are projected to be so huge that it would be
dangerous to look only at one of them. They are showing
the highest growth rate of any market in the world. Any
auto maker would be on a fool's errand if it ignores any
of them."

Small wonder then that Ravi Khanna of
Delphi India is "convinced that with the increasing
emphasis on quality, India is fast moving towards
becoming a sourcing hub for global automobile makers".